Just days after the beleaguered Donut King, Gloria Jeans and Michel’s Patisserie franchisor announced a $160m capital raising initiative, Retail Food Group (RFG) has doubled down on their plans.
Initially aiming to raise $150m from a fully underwritten institutional placement to repay the company’s crippling debt, RFG has now raised that figure to $170m, adding a further 200 million ordinary shares to the fold at a price of $0.10.
Additionally, the brand has also upsized its share purchase plan from $10m to $20m.
RFG executive chairman Peter George said the recapitalization plan had gathered significant support from investors and the wider community.
“We are delighted with the support received for the Placement, and welcome a number of highly credentialed and supportive institutional investors to the shareholder register,” he said.
“The recapitalization is transformational for the RFG business and will allow the RFG team to continue to harness the underlying value of the franchise network and enhance franchisee profitability.”
RFG capital raising increase
The now $190m RFG recapitalization plan forms part of a wider strategy to reduce the company’s mountain of debt.
It comes after two successive years of dwindling profit, culminating in a $150m FY19 loss and bringing the net debt to $260m.
“Following completion of the offer and debt restructure, RFG will have a sustainable go-forward debt facility, and a liquidity buffer to provide stability whilst management implements various performance improvement initiatives,” the company said.
“The company considers the Debt Restructure and equity raising to be the best outcome available to the company and shareholders, delivering a strengthen the balance sheet and an opportunity for stabilization and business improvement.”
Soliton Capital proposal
Previous reports had indicated that RFG had received a $160m recapitalization proposal from Soliton Capital Partners, granting the firm limited exclusivity, however, the company on Tuesday confirmed no offer had been reached.
“The company engaged in extensive discussions with Soliton Capital Partners during the exclusivity period,” RFG said.
“However, the exclusivity period has now expired, and the company has not received any binding proposal from Soliton Capital Partners at this time.”
Debt restructuring
Tuesday’s announcement also brought further operational initiatives into the frame, with RFG revealing how it plans to achieve a previously announced $30m gross margin generation into the franchisee network.
Specifically, the company plans on passing on significant savings to franchisees in connection with rental arrangements, fit-out and refurbishment costs, as well as greatly reducing the cost of goods. This includes a 15 to 20 per cent reduction in wholesale coffee pricing, which kicked off on July 1 this year.
According to the franchisor, the initiative delivered an 18 percent increase in average coffee volumes ordered per store in July when compared to the prior months, and a 10 percent increase compared to July 2018.
At present, RFG is still clinging to Friday’s FY20 underlying EBITDA guidance projection of between $42.0 and $46.0m.
“Whereas retail continues to represent a challenging sector, RFG is beginning to observe the positive impacts of the business improvement measures being implemented by the company,” RFG said.
The company will be hoping to see those positive impacts flow on, particularly in light of the share price slump that hit once the trading suspension was lifted early on Tuesday.
Shares hit an all-time low of 12.5c following Friday’s initial recapitalization announcement, before regaining to 15c by around 11am.